HKScan’s FY 2012 - Analysts’ consensus EPS €0,16 is reasonable

HKScan’s 2012 financial statement will be released on February and now is the right time to look at what analysts have thought about HKScan's earnings for the year 2012.

Bloomberg brings together analysts' forecasts and other company information and HKScan’s forecasts are also available.  The consensus FY 2012 EPS (pre-exceptional) is €0,16. The number of participating analysts is 8.  Hovering over the chart, one can find that the estimates range from €0,12 to €0,19.  That’s nice.  The not so nice thing is that the page says the estimates to be in U.S. dollars.  The chart, however, strongly suggests that the estimates are in euros, like many but not all monetary amounts on the page.  For instance, HKScan’s actual 2011 EPS really was €0,18 as the chart on the page also says.

What is required for the FY 2012 EPS to be €0.16?

Due to the weak H1, EPS after Q3 is only €0,01.  The Q4 EPS must therefore be € 0,15.  Incidentally in 2011 the Q4 EPS was € 0.14 and in 2010 the Q4 EPS was €0,15.  So it seems that analysts on average expect roughly the same Q4 result as it was in the preceding two years.  Now, let’s look at actual quarterly EBITs from recent years. 

The chart below illustrates HKScan’s quarterly EBITs starting from 2009.  The readings are highly unofficial and possible errors are all mine. Actual EBITs are marked with solid lines.  Dashed circles show a set of reasonable market-specific Q4 figures, which could ensure the realization of the analysts’ consensus. Please note that Group administration costs, they may be some €2 million, are subtracted from the whole HKSscan Group’s result. 

The case looks simple.  In order to reach the FY 2012 consensus EPS, the entire Group's Q4 EBIT should be approximately €19 million.  First adding the share of associates' results perhaps some €0,5 million, then subtracting net financial expenses perhaps about €8 million, then continuing guesswork and subtracting taxes about €2 million and finally subtracting profit attributable to non-controlling interests, perhaps about €1 million, we end up with the sum of €8,5 million.  The number of shares is approximately 55 million.  Then, Q4 EPS would be about €0,15, which is  exactly as required for the FY 2012 consensus EPS €0,16 to be achieved.  Please remember, that EPS after Q3 is already €0,01.  In all, the consensus does not look particularly unrealistic.  Let's look at each of the market area.

HKScan Finland

In Finland, HKScan needs to reach a moderately good Q4 result, preferably better than those achieved in recent years.  Such a result is not a cakewalk.  The 2011 Q4 EBIT was a little over 7 million and in the 2011 financial statement it was considered a good result.  In particular, the company stated that the Christmas season 2011 succeeded thanks to the newly launched rapeseed pork ham.  On this season no major new products were in the product range.  However, as the chart also tells, 2012 quarters Q1 to Q3 have gone better when compared to the previous year.  Therefore, a modest improvement also in Q4 is well possible.  Then Q4 EBIT of 8 million is achievable.

                                                                                         

HKScan Sweden

As HKScan has repeatedly stated, the HKScan Sweden’s weak performance may lower the whole Group's annual result below FY 2011 level.  Especially H1 was insanely bad.  Then, one cannot expect any super Q4.  However, it should also be noted, that the 2011 Q4 EBIT, slightly more than € 7 million, was specifically not considered a good result, and according to the company, the Christmas season 2011 was quieter than expected.  Now the things could be changed.  It is precisely because there was now a new season product, rapeseed ham, the same product which was a success in Finland already in 2011.  Then Q4 EBIT of € 6 million, slightly lower than in 2011, does not sound impossible. 

HKScan Denmark 

In Denmark the Q4 2012 result should be better than the corresponding result in 2011.  There were clear reasons for 2011 Q4's disappointing result.  One of them was the clearing of export stocks of chicken leg quarters, as mentioned in the 2011 financial statement release.  Moreover, production in Vinderup has been restarted in early December.   Then Q4 EBIT of €1 million is within the realms of possibility.  In addition, a non-recurring income of fire insurance compensation is possible, as the company itself has said

                                                                                                             

HKScan Baltics

                           

HKScan Baltics is in a good shape and one can expect a good Q4 result, something similar to Q4 2011.  It is true, that the Q4 2011 was a success and Christmas season sales went well, but the last Christmas was a success as well.  Both Tallegg and Rakvere Lihakombinaat sales were up in many important product groups.  Then Q4 EBIT of € 3 million is undoubtedly possible.

HKScan Poland

HKScan Poland’s Q4 2012 may have been worse than the previous year’s corresponding period, even though all the first three quarters in 2012 have been better when compared to the previous year. In 2011 December sales reached all-time high.  Perhaps now Sokołów has failed to reach the same.  Boguslaw Miszczuk, president of Sokołów, in a journal article points out a rather pessimistic view, something like this:  

The deteriorating economic situation in Poland may limit the consumption of foods, including meat and dairy products – it may be expected that consumers are increasingly interested in lower-priced products.

Miszczuk’s statement refers to the current year but one may suppose that the last quarter of 2012 did not go to the most optimal way.  It is possible that the demand has shifted to private label brands and cheaper product groups. Exports could still go well, even if the zloty was stronger compared to Q4 2011.  Then Q4 EBIT of €3 million, somewhat lower than in 2011, is thinkable.

What else?

As already mentioned, analyst’s FY 2012 EPS estimates range from €0,12 to €0,19.  They all are decent, if they are compared to recent years’ results.  However, compared to the company's targets, they all sound only trashy.

HKScan's top management always emphasizes the company's strong market position in all its market areas. Unfortunately it just has not been reflected in the company's success in Finland and Sweden. Positively thinking, the company has tremendous potential.  In the best case, HKScan’s earnings in Finland and Sweden will improve dramatically within only a few years. In the slightly longer term Poland, with its population of 40 million, may bring almost half of the profits, despite the fact that HKScan's share of Sokołów is only 50%.  EBIT readings may then be on a totally different level than today.  We’ll see.

Perhaps the success comes tomorrow, but today the most striking feature is the fact that HKScan has a huge pile of debt. Consequently, the company is burdened by enormous financial expenses. It is almost senseless, that (now ignoring financial income) for example in 2011 HKScan financial expenses were €38,3 million and at the same time EBIT was only slightly more, €39,6 million. 

We will discuss HKScan later but on Friday, February 15^th, we are going to look at Atria’s Q4 2012.  Midday is no longer as dim as it could be, but I believe that summer will not come prior to spring. 

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